America's fall has arrived

We got to the end of the Empire a lot sooner than anyone anticipated.

by Kevin Potvin <kpotvin@republic-news.org>

America’s war on Iraq is going very badly. After 28 months and 500,000 troops rotated through the war zone, there are as many as 13,000 dead and 103,000 wounded (See “It’s worse than reported,” this issue.

By May, the US Army admitted that about 6,000 soldiers had deserted. But earlier in January, the Sunday Telegraph estimated that as many as 5,500 American deserters had fled to Canada to avoid service in Iraq—and there must be many more since. Daily there are reports of Iraq veterans committing suicide, shooting up their families, or intentionally injuring themselves in the face of orders to re-deploy.

The Vice President, Dick Chenney, announced in June that the insurgency was “in its last throes.” He was immediately contradicted by the top US general in the war, General Abazaid, who said the insurgency is as strong today as it was at its peak six months ago. The White House announced great progress was being made and that troop strength would begin to be wound down beginning this fall. This was immediately contradicted by the Pentagon who requested Congress consider increasing troop strength. With Republican senators surmising out loud about a timetable for withdrawal, the Secretary of Defense, Donald Rumsfeld, speculated the war could last 12 years. President Bush insisted in public appearances that US forces will win the war in Iraq. In a nearly completely overlooked statement, Rumsfeld told a television news show the very same week, “The coalition cannot defeat the insurgency.”

The US treasury has been drained for US $350 billion so far, or for about $1,182 per capita. That is already 46 per cent of the per-capita cost of the nine-year Vietnam War in constant dollars. In costs to the nation, the bill for the Iraq War is already 76 per cent of the Vietnam War bill. This is before Congress has approved the latest requests for additional spending. The cost of the Iraq war will surpass the cost of the Vietnam conflict before this year is out. Expressed as a percentage of GNP, the Iraq War may surpass the cost of the Vietnam War by the end of next year. These are all according to official US government figures; reality may be surprisingly worse when it becomes known.

Focusing on the cost of the Iraq War is important because it was the cost of the Vietnam War, more than the public protest against it or the lack of success it was showing on the ground, that determined the fate of the war and the fate of the American nation afterward. The American government had been nearly bankrupted by the costs of the Vietnam War, whose annual price by 1971 added up to an unsustainable one per cent of that nation’s annual gross national product.

To avoid defaulting on the resulting enormous debts the war had burdened the government with, Nixon was forced to take the dollar off the gold standard. The move allowed the government to devalue the debt it owed by lowering the value of US dollars, which was achieved by the US treasury printing and distributing many more of them. The resulting inflation brought on an immediate recession in America followed by the financial collapse of cities—including New York which eventually declared bankruptcy—and a decline in American industrial power (including the bankruptcy of two of its four car makers) that continues to this day. But at the time, America still enjoyed a current account surplus (it exported more than it imported) and was not a major oil importer. The damage to the US economy by the reckless and profligate Vietnam War was limited because the nation was still able to earn the lost income back and restore its fiscal balance relatively quickly.

This year, combat costs alone in the Iraq War will run the US government the equivalent of about 1 per cent of the nation’s gross national product. The country is already off the gold standard and will be able to print money as required to control the value of the resulting debts. But this year, the US will also suffer a US $720 billion trade deficit and it imports more oil than any other nation on Earth.

Creditors in 1971 could still believe the US would make good on its debts. Today, with a staggering and growing trade deficit and a dependence on imported oil just when it is peaking in price, the US may find that when it tries to print more money to reduce the value of the debts it owes its many creditors—debts resulting in large part from the folly of the Iraq War—those creditors will no longer believe the US can make good. They will instead suspect the US will go the way Russia and Argentina went recently: it will default on its loans. Whether or not it does so is less important than whether creditors think it might.

There are historians who can make a persuasive case for the relative primacy of fiscal health in the rise and fall of great nations and empires. The sun set on the British Empire not by any particular military defeat, but by the unsustainable costs of managing it. The Ottoman Empire, longer running and arguably more expansive yet, finally came to its ignominious end due to bankruptcy. The Soviet Empire collapsed not through its long-anticipated war with the West, but through an emptied treasury. Both Germany and Japan in the 1940s were unable to sustain a defence of their burgeoning empires, it has been argued, because of the unsustainable costs of those empires.

Doubters will say the US economy remains very strong and, despite a poor trade deficit and mounting debts, it can recover from any war-related debt based on its economic strengths. However, though economic growth in the US has been showing remarkable resilience, all economists agree that the only underlying economic indicator that remains positive, and that probably accounts for an inordinate proportion of that growth, is strong consumer spending. And strong consumer spending is not the result of any rise in wages or productivity. Strong consumer spending seems almost entirely to originate with high and rising home equity values, against which Americans have been able to borrow to finance their excessive purchases.

But as many experts, including Federal Reserve Chair Alan Greenspan, have noted, home equity values are so inflated, it is accurate to characterize the phenomenon as an economic “bubble.” And as such, it is a bigger bubble than the 1990s tech-stock bubble by about ten times. Bubbles always burst, and when this one bursts, not only will Americans find themselves high in debt with no supporting equity, they will discover there is no more credit available to them with which to finance any further purchasing. When consumer spending therefore drops, US economic growth will halt, bringing on a recession just when the US will be needing to convince its many creditors that its economy is in good shape and that it can earn its way back from its terrific war-related debts.

Creditors will not likely believe it and they will begin selling US assets, and in particular US treasury bonds, of which they hold trillions of dollars worth. Without any more purchases of these US assets by international creditors, there will be no support for the dollar which will plunge. Interest rates will be hiked up dramatically to cut the damage to the US dollar, but not without choking off business in America and plunging more US homeowners deeper into debt and bankruptcy. Finally, the government itself, deprived of income from so many businesses going under and workers going unemployed, will be at risk of failing to make payments on its debts.

Severe austerity in government spending will be the only choice, necessitating the pull-back of all US military deployments and bases from around the world—and redeployment on domestic soil. This is already beginning, according to sources talking to the New York Times, who say the Pentagon is mulling a massive reorganization from one capable of fighting two major wars at once, to one that can fight one war, with the remainder of forces deployed “to protect American home territory.” No one mentioned from what threat, but out-of-work, homeless masses of Americans could be what they are seeing over the horizon. Since it is only far-flung US military deployments and bases that protect US-dominated resource sites and the shipping lanes to and from them, without military protection, the entire US economic empire will dry up from lack of access to those resources. Whatever assets US companies own, like land leases, exploration and extraction rights, as well as customer contracts, will be sold off at fire-sale prices to international competitors.

It isn’t just the costs of the ill-advised Iraq war that shall bring the US Empire to an ignoble end. History will judge that invasion as only the last straw of many on the camel’s back. The collapse of the US Empire was not inevitable in the spring of 2003. It may have still been possible then to sustain lower military spending and a balanced federal budget the better to gently lower Americans’ standard of living with a reassuring safety net re-woven beneath them. This way, America might have retreated from its post-World War II resource empire with a minimum of transition costs to become one of the leaders in a new community of globalized nations.

Such a transition would have required the very best quality of diplomacy America had ever shown the world. 9-11, and the immediate out-pouring of sympathy around the world that that attack engendered, could have been recognized as an opportunity to establish new international interconnectedness and to lay out the framework for a new, post-imperial world order.

But a different choice was made. On September 21, Bush announced that the US would instead act unilaterally to re-impose itself by force upon a recalcitrant world, and threatened everyone with his monumentally fatal statement: “You are either with us or you are against us.” History will record that that was the moment the fate of the US Empire was sealed. The rest since then and for a few more years yet is merely the inevitable collapse already set in motion from that day.

Iraq is the unlucky nation cursed with the burden of playing host to the first stumble of the previously invincible giant. And that first stumble is today plainly evident perhaps not in the Western media, but certainly in the reports from the actual field. The decline of the American Empire is on.

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